By Sarah Wang, Industry Analyst, Australia & New Zealand Industrial Practice, Frost & Sullivan

Introduction

After nearly five years of double-digit annual growth in the Australian BMCS market, which was driven by the construction boom, construction investment is to face the first downturn with an almost 10 percent decline in 2009. This has dramatically changed the revenue outlook for BMCS suppliers in the market. The drop in construction investment is mainly in the office sector, entertainment, warehouse sector and other commercial sector. Investment in public-funded domains such as health and age care facilities is expected to hold well from 2009 to 2011. Typically, a BMCS vendor’s income comprises 55 percent of new-built projects and 45 percent of renovation/refurbishment projects. The decrease in construction investment is likely to negatively impact revenue from the new-built segment.

However the unique function of BMCS in energy efficiency, i.e. realizing energy savings through measurements and control, has provided new growth opportunities for BMCS suppliers. This opportunity arises when customers seek to be more cost-conscious and are therefore compelled to abide by energy-efficiency regulations.

Commercial building construction activity, particularly office buildings, grew dramatically over the past five years, rising from US$2.9 billion in 2002/03 to US$7.6 billion in 2007-08. However, the breakout of the financial crisis and the fears of a deepening recession have led to the scenario where many approved building projects are now on hold. According to the Australian Construction Forecast Council, growth for office buildings is expected to be very weak during 2008/2009 and 2009/2010. In fact, it has been estimated that construction activity in the office sector in states including Victoria, Queensland and Western Australia is to see a decrease. The situation is expected to ameliorate from 2011 onwards. This flat growth in the commercial sector poses major challenges to BMCS suppliers, especially in the new-built segment.

Nevertheless, sectors that are generally public-funded, such as educational buildings, health and age care buildings are expected not to be impacted as badly as the commercial sector. In fact, the investment levels in these sectors are likely to hold well as the federal government and state governments invest to assist the economic recovery.

During an economic downturn, when all facets of businesses are experiencing severe challenges from decreased spending and slowing credit movements, cost has become a primary concern for all business owners. This just intensifies the competition in the already price-driven BMCS market in Australia. Nevertheless, the unique function of BMCS in monitoring and controlling energy consumption has opened up opportunities for BMCS suppliers to assist building owners in lowering ongoing operational costs. Data for a number of UK buildings shows avoidable waste levels in the range of 25 percent to 50 percent. A BMCS upgrade that can potentially achieve a reduction of 30 percent to 40 percent in energy consumption is likely to have a 4 to 5-year payback period. However, for BMCS suppliers, marketing this benefit would require strong marketing skills, demonstrable ROI and a successful track record.

The Australian federal government has committed to cut down 5 to 10 percent of greenhouse gas (GHG) emissions by 2020 on 2000 emission levels, as part of its obligations to ratifying the Kyoto Protocol. According to the estimates of the Australian Sustainable Built Environment Council (ABSEC) Climate Change Task Group, the building sector in Australia contributes 23 percent of total greenhouse gas generated in Australia. Energy efficiency in the built environment is therefore considered a crucial strategy in achieving the overall GHG reduction target.

Any efforts and measures in reducing greenhouse gas emissions nationwide almost inevitably lead to energy price increases (particularly that of electricity prices; considering the fact that Australian electricity is lower-priced when compared with its industrialized peers in Europe and Asia).

Based on the ‘Emission Reduction Targets Position Paper’ by Climate Action Network Australia (August 2008), the energy efficiency efforts in building, lighting and air handling alone not only contribute to the greenhouse gas reduction but also are deemed one of the most cost effective ways among GHG abatement strategies in all sectors including alternative energy, coal-to gas shifts, energy efficiency in basic materials production, agriculture and forest management etc. This has provided exciting growth opportunities to BMCS suppliers in Australia through helping building owners achieve energy consumption reduction targets as well as reduced operational cost.

The functions required to achieve energy efficiency have for a long time been built-in to all BMCS offerings. However, what is lacking is the fine-tuning and programming required to activate and deploy effectively these functions. Well trained and experienced technicians are needed to fulfill this task. In this regard, the long-term skill-shortage in the BMCS industry is likely to continue to challenge suppliers.

Since the results of an energy-efficiency project has to be tested over time, while the current terms in a typical BMCS contract only stipulate delivery conditions for one year, the effort to fully realize energy-efficiency can also be compromised.

Outsourcing has been a growing trend in the Australian BMCS market. Private BMCS service suppliers have been competing in the maintenance market for short to long-term facility service contracts. In the booming market of the recent past, large system suppliers occasionally overlooked some of the opportunities in this market as it usually involved too much by way of resource deployment. Nevertheless, in a sluggish market, service contracts bring in future revenues and become a reliable ongoing source for cash flow. In addition, service plays an important role in energy-efficiency offerings where ongoing monitoring and system tuning are crucial for control systems to deliver results and perform controlling tasks in a feedback loop.

Moving forward, the Australian BMCS market is likely to contend with several challenges; however, there also exist opportunities in energy consumption reduction, decreasing carbon footprint, and reducing building operational costs. BMCS suppliers would be compelled to “push” through these changes in approach and practice even as lowest-cost based decision making and inadequate appreciation and awareness of the functionalities of control systems remain amongst customers.

This article was authored by Sarah Wang, Industry Analyst, Australia & New Zealand Industrial Practice, Frost & Sullivan.

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